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JCER Financial Stress Index

JCER Financial Stress Index is 0.036, released on September 27, 2021

- A state of emergency is expected to be lifted at the end of September
- China's real estate unrest receded tentatively and financial stress remains at a low level

  Senior Economist


  The JCER Financial Stress Index for Japan is an indicator based on daily market data to capture the rise of financial systemic risk, which could cause a malfunction of the entire financial system and adversely affect the real economy. Since this index is based on market data, it is possible to quantitatively grasp financial stress in near real time.
  The index is constructed by selecting three individual indicators from the following five sub-markets: (1) stock market, (2) money market, (3) bond market, (4) financial intermediaries (banking sector), and (5) foreign exchange market.

The latest value: 0.036   <+0.005 from the last weekend>
(As of September 24, 2021)


  The index is designed to detect a recurrence of financial system instability in the late 1990s in Japan and of the global financial crisis of 2007-08. With reference to the “Composite Indicator of Systemic Stress” by European Central Bank (ECB), this is created by compositing the following 15 financial market data, such as stock price and its volatility, bond yield spreads, and exchange rate changes.

Stock market: Volatility of TOPIX (absolute value of log return), Ratio of TOPIX to its highest value in the past two years, Liquidity indicator based on trading volume
Money market: Spread between 3-month TIBOR and 3-month Treasury yields, Repo rate, Dollar funding premium (yen basis, 1 year)
Bond market: Volatility of 10-year government bonds (absolute value of change in yield), Swap spread (difference between 2-year swap rate and 2-year government bond yield), BBB rated corporate bond spread
Financial intermediaries (banking sector): Specific shock on bank stocks (estimating the variance of the residuals obtained by regressing the returns of the bank stock index on the returns of TOPIX using the GARCH (1,1) model), Ratio of TOPIX banking stock index to its highest value in the past two years, Banking sector bond spreads
Foreign exchange market: Volatility in yen/dollar exchange rate (absolute value of log return), Volatility in yen/euro exchange rate (absolute value of log return), Volatility in yen/pound exchange rate (absolute value of log return)

For more details of this index, please refer to the following reports and literature.
  Japan Center for Economic Research, 2019. “Risks in the BOJ’s ETF Purchases and Regional Financial Institutions - A stress event could reignite financial system anxiety,” FY 2019 Financial Research Report II: Overhauling Financial Risks in Japan (No. 41), February 12, 2020. (members only).
  Holló, D., Kremer, M. and Lo Duca, M., 2012. “CISS - A Composite Indicator of Systemic Stress in the Financial System,” Working Paper Series, No. 1426, European Central Bank, March 2012.

  Given that the stress on financial markets due to a spread of the novel coronavirus (COVID-19) has calmed down compared to the past few months, we change the operation of this index which has released weekly so far. Henceforth, we update the index once a month in principle, and release it on the last Monday (the next business day if it is a holiday). When significant fluctuations in the financial markets occur, we are to update and release the index temporarily.


JCER Financial Stress Index is 0.051, released on November 28, 2022

- Slowing U.S. inflation has led to market expectations that the FED will gear down the pace of interest rate hikes
- TOPIX is at its highest level in about 10 months, and financial stress remains a low level



JCER Financial Stress Index is 0.054, released on October 28, 2022

- Inflation in the US remains high level and the European Central Bank raised interest rates by 0.75 percentage points
- The BOJ continues massive easing and financial stress maintains low level



JCER Financial Stress Index is 0.054, released on September 26, 2022

- While central banks in the US and Europe continue to raise interest rate aggressively, BOJ maintains massive easing
- Japanese government and BOJ intervened to buy the yen for the first time in about 24 years, financial stress keeps a low level



JCER Financial Stress Index is 0.043, released on August 29, 2022

- The Fed maintains its stance of controlling inflation at the expense of the economy
- While the yen weakens again, financial stress remains low level



JCER Financial Stress Index is 0.072, released on July 26, 2022

- The BOJ has decided to continue massive easing program
- The yen strengthened against the dollar due to caution about the US economy, financial stress remains a low level